Galp Energia — Audit Report / Information 2011

Apr 5, 2012

Growing energy

INDIVIDUAL ACCOUNTS REPORT 2011

www.galpenergia.com

This translation of the Portuguese document was made only for the convenience of non-Portuguese speaking interested parties. For all intents and purposes, the Portuguese version shall prevail.

INDIVIDUAL ACCOUNTS REPORT 2011

INDIVIDUAL ACCOUNTS	5
AUDITORS' REPORT	31
STATUTORY AUDITORS' REPORT	32
SUPERVISORY BOARD'S REPORT AND OPINION	33

STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2011 AND 2010

(Amounts stated in thousands of Euros - tEuros) (Translation of income statement originally issued in Portuguese - Note 37)

ASSETS	Notes	2011	2010
Non- current assets:
Tangible assets	12	5	9
Intangible assets	12	-	-
Investments in associates and jointly controlled entities	4	1,224,882	1,196,626
Investments in other companies	4	151	153
Other receivables	14	3,111,704	2,850,635
Deferred tax assets	9	775	206
Other investments	17 e 27	1,032	702
Total non-current assets:		4,338,549	4,048,331
Current assets
Trade receivables	15	2,722	4,836
Other receivables	14	354,916	187,461
Current income tax recoverable	9	52,862	50,654
Cash and equivalents	18	56,669	434
Total current assets:		467,169	243,385
Total assets		4,805,718	4,291,716
Equity and Liabilities	Notes	2011	2010
Equity:
Share capital	19	829,251	829,251
Share premium		82,006	82,006
Other reserves	20	193,827	193,827
Hedging reserves		(573)	-
Retained earnings		591,482	402,185
Interim dividend	30	-	(49,755)
Net profi t for the year		77,152	355,147
Total equity:		1,773,145	1,812,661
Liabilities:
Non-current liabilities:
Bank loans	22	629,904	851,319
Bonds	22	905,000	1,000,000
Other investments	9	299	-
Deferred tax liabilities	17 e 27	1,756	-
Provisions	25	6,940	7,087
Total non-current liabilities:		1,543,899	1,858,406
Current liabilities:
Bank loans and overdrfts	22	725,295	229,707
Bonds	22	280,000	-
Trade payables	26	605	352
Other payables	24	451,456	337,562
Current income tax payable	9	31,317	53,028
Total current liabilities		1,488,673	620,650
Total liabilities		3,032,572	2,479,055
Total equity and liabilities		4,805,718	4,291,716

The accompanying notes form an integral part of statement of fi nancial position as of 31 December 2011.

THE ACCOUNTANT THE BOARD OF DIRECTORS

INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2011 AND 2010

(Amounts stated in thousands of Euros - tEuros)

							(Translation of income statement originally issued in Portuguese - Note 37)
--	--	--	--	--	--	--	-----------------------------------------------------------------------------	--	--	--

	Notes	2011	2010
Operating income:
Services rendered	5	9,088	7,381
Other operating income	5	299	2,544
Total operating income:		9,387	9,925
Operating costs:
External supplies and services	6	(6,036)	(8,491)
Employee costs	6	(5,200)	(5,033)
Amortisation, depreciation and impairment loss on tangible assets	6	(4)	(5)
Provision and impairment loss on receivables	6	106	(3,365)
Other operating costs	6	(1,487)	(808)
Total operating costs:		(12,622)	(17,703)
Operating profi t (loss):		(3,234)	(7,777)
Financial income	8	161,419	92,111
Financial costs	8	(123,519)	(74,094)
Exchange gain (loss)		-	(43)
Share of results of investments in associates and jointly controlled entities	4	53,045	348,803
Income (loss) on fi nancial instruments	27	(619)	702
Profi t before tax:		87,093	359,702
Income tax	9	(9,941)	(4,555)
Net profi t	10	77,152	355,147
Earnings per share (in Euros)	10	0.09 €	0.43 €

The accompanying notes form an integral part of the income statement for the years ended 31 December 2011.

THE ACCOUNTANT THE BOARD OF DIRECTORS

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011 AND 2010

(Amounts stated in thousands of Euros - tEuros)

(Translation of statements of change in equity originally issued in Portuguese - Note 37)

				Other			Interim
		Share	Share	reserves	Hedging	Retained	dividend	Net profi t
Changes in the period	Notes	capital	premium	(Note 20)	reserves	Earnings	(Note 30)	for the year	Total
Balance as of 1 January 2010		829,251	82,006	193,827		72,036	(49,755)	495,999	1,623,364
Net profi t for the year	10	-	-	-	-	-	-	355,147	355,147
Other gains and losses recognised in Equity		-	-	-	-	-	-	-	-
Comprehensive income for the year		-	-	-	-	-	-	355,147	355,147
Dividends distributed		-	-	-	-	(165,850)	49,755	-	(116,095)
Appropriation of profi t to reserves		-	-	-	-	495,999	(49,755)	(495,999)	(49,755)
Balance as of 31 December 2010		829,251	82,006	193,827	-	402,185	(49,755)	355,147	1,812,661
Balance as of 31 December 2010		829,251	82,006	193,827	-	402,185	(49,755)	355,147	1,812,661
Net profi t for the year	10	-	-	-	-	-	-	77,152	77,152
Other gains and losses recognised in Equity		-	-	-	(573)	-	-	-	(573)
Comprehensive income for the year		-	-	-	(573)	-	-	77,152	76,579
Dividends distributed	30	-	-	-	-	(165,850)	49,755	-	(116,095)
Appropriation of profi t to reserves		-	-	-	-	355,147	-	(355,147)	-
Balance as of 31 December 2011		829,251	82,006	193,827	(573)	591,482	-	77,152	1,773,145

The accompanying notes form an integral part of the statement of chages in equity for the year ended 31 December 2011.

THE ACCOUNTANT THE BOARD OF DIRECTORS

Carlos Alberto Nunes Barata Francisco Luís Murteira Nabo Luca Bertelli Manuel Ferreira De Oliveira Claudio De Marco Manuel Domingos Vicente Paolo Grossi Fernando Manuel dos Santos Gomes Fabrizio Dassogno José António Marques Gonçalves Giuseppe Ricci André Freire de Almeida Palmeiro Ribeiro Luigi Spelli Carlos Nuno Gomes da Silva Joaquim José Borges Gouveia Rui Paulo da Costa Cunha e Silva Gonçalves Maria Rita Galli João Pedro Leitão Pinheiro de Figueiredo Brito

GALP ENERGIA, SGPS, S. A.

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011 AND 2010

(Amounts stated in thousands of Euros - tEuros) (Translation of statement of comprehensive income originally issued in Portuguese - Note 37)

	Notes	2011	2010
Net profi t for the year	10	77.152	355.147
Other gains and losses recognised in Equity net income tax expense		(573)	-
Other gains and losses recognised in Equity net income tax expense		(573)	-
Consolidated gains and losses recognised in Equity		76.579	355.147

The accompanying notes form an integral part of the statement of comprehensive income for the year ended 31 December 2011.

THE ACCOUNTANT THE BOARD OF DIRECTORS

CASH FLOW STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2011 AND 2010

(Amounts stated in thousands of Euros - tEuros) (Translation of Cash fl ow statement originally issued in Portuguese - Note 37)

	Notes	2011	2010
Operating activities:
Cash receipt from trade receivables		13,869	10,634
Cash paid to trade payables		(9,482)	(13,100)
Cash paid to employees		(2,967)	(2,467)
Income tax received / (paid)		(32,766)	(5,470)
other (payments)/ receipts relating to operating activities		(1,779)	(744)
Cash fl ow from operating activities (1)		(33,126)	(11,147)
Investing activities
Cash receipts related to:
Investments	4	5	1,035
Interest and similar income		53,860	71,401
Dividends	4	53,880	348,764
Loans granted		59,451	26,250
		167,196	447,450
Cash payments related to:
Investments		(29,096)	(29,550)
Loans granted		(337,716)	(1,461,080)
		(366,812)	(1,490,630)
Cash fl ow from investing activities (2)		(199,616)	(1,043,180)
Financing activities:
Cash receipts related to:
Loans granted		810,350	1,212,725
Cash payments related to:
Loans obtained		(240,166)	(41,500)
Interest and similar costs		(115,251)	(70,098)
Dividends	30	(116,095)	(165,850)
		(471,513)	(277,448)
Cash fl ow from fi nancing activities (3)		338,837	935,277
Changes in cash and equivalents (4) = (1) + (2) + (3)		106,096	(119,050)
Cash and equivalents at the begining of the year	18	(75,557)	43,493
Cash and equivalents at the end of the year	18	30,539	(75,557)

The accompanying notes form an integral part of cash fl ow statement as for the year ended 31 December 2011.

THE ACCOUNTANT THE BOARD OF DIRECTORS

1 • INTRODUCTION 10
2 • SIGNIFICANT ACCOUNTING POLICIES 10
2.1 Basis of presentation 10
2.2 Investments in subsidiaries 11
2.3 Tangible assets 11
2.4 Impairment of non-current assets, except goodwill 11
2.5 Provisions 11
2.6 Foreign currency balances and transactions 11
2.7 Income and accrual basis 11
2.8 Financial costs on loans obtained 11
2.9 Income tax 12
2.10 Financial instruments 12
2.11 Statement of the fi nancial position classifi cation 13
2.12 Subsequent events 13
2.13 Judgements and estimates 13
2.14 Risk management and hedging 13
2.15 Equity 13
3 • COMPANIES INCLUDED IN THE CONSOLIDATION 13
4 • INVESTMENTS IN ASSOCIATES 14
4.1 Investments in subsidiaries 14
4.2 Investments in associates and jointly controlled entities 15
5 • OPERATING INCOME 15
6 • OPERATING COSTS 16
7 • SEGMENT REPORTING 16
8 • FINANCIAL INCOME AND COSTS 16
9 • INCOME TAX 17
10 • EARNINGS PER SHARE 18
11 • GOODWILL 18
12 • TANGIBLE AND INTANGIBLE ASSETS 18
13 • GOVERNMENT GRANTS 18
14 • OTHER RECEIVABLES 19
15 • TRADE RECEIVABLES 19
16 • INVENTORIES 19
17 • OTHER INVESTMENTS 19
18 • CASH AND CASH EQUIVALENTS 19
19 • SHARE CAPITAL 19
20 • OTHER RESERVES 20
21 • NON-CONTROLLING INTERESTS 20
22 • LOANS 20
23 • RETIREMENT AND OTHER EMPLOYEE BENEFITS 21
24 • OTHER PAYABLES 21
25 • PROVISIONS 21
26 • TRADE PAYABLES 21
27 • OTHER FINANCIAL INSTRUMENTS – DERIVATIVES 22
28 • RELATED PARTIES 23
29 • REMUNERATION OF THE BOARD AND OTHER KEY MANAGEMENT PERSONNEL 28
30 • DIVIDENDS 29
31 • PETROLEUM RESERVES 29
32 • FINANCIAL RISK MANAGEMENT 29
33 • CONTINGENT ASSETS AND CONTINGENT LIABILITIES 29
34 • INFORMATION REGARDING ENVIRONMENTAL MATTERS 30
35 • SUBSEQUENT EVENTS 30
36 • APPROVAL OF THE FINANCIAL STATEMENTS 30
37 • EXPLANATION ADDED FOR TRANSLATION 30

NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2011

(Amounts stated in thousands of Euros) (Translation of notes originally issued in Portuguese – Note 37)

1 • INTRODUCTION

Galp Energia, SGPS, S. A. (hereinafter referred to as Galp or the Company), was incorporated as a Government owned corporation under Decree-Law 137-A/99 of 22 April 1999, with the name "Galp – Petróleos e Gás de Portugal, SGPS, S. A.", having adopted its present designation of Galp Energia, SGPS, S. A. on 13 September 2000.

The Company's head offi ce is in Lisbon and its main purpose is the management of other companies having, as of the date of its incorporation, taken control of the State's direct participations in the following companies: Petróleos de Portugal – Petrogal, S. A.; GDP – Gás de Portugal, SGPS, S. A. (merged into the Company effective as of 1 January 2008) and Transgás – Sociedade Portuguesa de Gás Natural, S. A., currently designated Galp Gás Natural, S. A.

The Company shareholder position as of 31 December 2011 is stated in Note 19.

Part of the Company's shares, representing 25.32% of its capital, are listed on the Euronext Lisbon stock exchange.

The following fi nancial statements are presented in Euros (functional currency) since this is most commonly used currency in the economic environment in which the Company operates.

2 • SIGNIFICANT ACCOUNTING POLICIES

2.1 BASIS OF PRESENTATION

Galp Energia's fi nancial statements were prepared on a going concern basis, at historical cost except for fi nancial derivative instruments which are stated at fair value based on the accounting records of the company, maintained in accordance with International Financial Reporting Standards as adopted by the European Union, effective for the year beginning 1 January 2011. These standards include International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ("IASB") and International Accounting Standards ("IAS") issued by the International Accounting Standards Committee ("IASC") and respective interpretations – SIC and IFRIC, issued by the International Financial Reporting Interpretation Committee ("IFRIC") and Standing Interpretation Committee ("SIC"). These standards and interpretations are hereinafter referred to as IAS/IFRS.

The approved and published standards "IAS/IFRS" in the Offi cial Journal of the European Union ("OJEU") during 2011 applicable to present and subsequent years are as follows:

New standards, changes and interpretations of existing standards:

	Publication date	Date of accounting	Pediod to which
Standards	in OJEU	application	it applies	Comments
Amendments to IFRS 7 Financial Instruments: Disclosures - Transfers of Financial Assets	November 23, 2011	after June 30, 2011	2012	No accounting impacts are expected

The approved and published "IAS/IFRS" standards in the Offi cial Journal of the European Union ("OJEU") applicable to 2011 and to subsequent years are as follows:

Annual improvement of standards effective for annual fi nancial periods beginnig on 1 Janaury 2011:

Standards	Publication date in OJEU	Date of accounting application	Pediod to which it applies	Comments
Improvements on the following standards: IFRS 3, IAS 21, IAS 27, IAS 28, IAS 31, IAS 32, IAS 39 e IFRS 7	February 19, 2011	after June 30, 2010	2011	No accounting impacts are expected
Improvements on the following standards: IFRS 1, IFRS 7, IAS 1, IAS 34 e IFRIC 13	February 19, 2011	after December 31, 2010	2011	No accounting impacts are expected
IFRIC 19: Extinction of fi nancial liabilities over equity instruments	July 24, 2010	after June 30, 2010	2011	No accounting impacts are expected
Revision of the standard IAS 24: Related parties disclosures	July 20, 2010	after December 31, 2010	2011	No accounting impacts are expected
Amendment to IFRIC 14: Pre-payment of a minimum funding requirement	July 20, 2010	after December 31, 2010	2011	No accounting impacts are expected
Amendment to IFRS - Limited exemption from comparative IFRS7 disclosures for fi rst-time adopters	July 1, 2010	after June 30, 2010	2011	Not applicable
Amendment to IAS 32-Financial instruments: Presentation - Classifi cation of Rights Issues	December 24, 2009	after January 31, 2010	2011	No accounting impacts are expected

The Board of Directors believes that the separate accompanying fi nancial statements and notes provide a fair view of the Company's fi nancial information. Estimates that affect the amounts of assets, liabilities, income and costs, at the reporting date, were used in preparing the accompanying fi nancial statements. The estimates and assumptions used by the Board of Directors were based on the best information available regarding events and transactions in process at the time of approval of the fi nancial statements.

In the preparation and presentation of separate fi nancial statements, the Company declares that it complies with the IAS / IFRS and their interpretations SIC / IFRIC as adopted by the European Union.

The main accounting principles considered by the Company in the preparation of its separate fi nancial statements are stated below. During the year ended 31 December 2011, there were no signifi cant changes in accounting principles applied compared to those considered in the preparation of fi nancial information for the previous year. Additionally, the company did not record material errors in respect of previous years.

	INDIVIDUAL ACCOUNTS

The fi nancial statements presented refer to the Company's separate fi nancial statements and were prepared according to the legal terms so that they may be approved at the shareholders general meeting, considering that investments are booked at acquisition cost as explained in note 2.2. The Company will prepare and separately present consolidated fi nancial statements including the fi nancial statements of the companies it controls.

Therefore, equity at 31 December 2011 and net profi t for the year then ended included in these separate fi nancial statements refl ect the effect of consolidating equity and the results of the subsidiary and associated companies based on their fi nancial statements. However, these fi nancial statements do not refl ect the effect of a full consolidation of assets, liabilities, costs and income.

2.2 INVESTMENTS IN SUBSIDIARIES

Investments in subsidiaries are recorded at the acquisition cost net of impairment losses, when applicable.

The investments in subsidiaries are presented in Note 4.

Dividends received from subsidiaries are booked as Share of results of investments in associates and jointly controlled entities.

2.3 TANGIBLE ASSETS

Tangible fi xed assets are recorded at acquisition cost net of depreciation and impairment losses.

Depreciation of the acquisition cost is calculated on a straight-line basis, as from the date the assets are available for operating, at the rates considered most appropriate to depreciate the assets during their estimated economic useful life.

The average depreciation rates used were as follows:

	Years
Administrative equipment	5 to 8
Other tangible assets	8

The capital gain/loss resulting from the write-off or disposal of tangible assets is determined by the difference between the sale price and the net book value as of the date of the write-off/disposal. The net book value includes accumulated impairment losses. The resulting accounting capital gain/loss is booked in the income statement under the caption "Other operating income" or "Other operating costs", respectively.

2.4 IMPAIRMENT OF NON-CURRENT ASSETS, EXCEPT GOODWILL

Impairment tests are made as of the fi nancial statements date and whenever a decline in the asset value is identifi ed. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is booked to the income statement caption "Amortisation, depreciation and impairment loss on tangible assets".

The recoverable amount is the greater of the net selling price and the value in use. Net selling price is the amount that would be obtained from selling the asset in a transaction between independent knowledgeable parties, less the costs directly attributable to the sale. Value in use corresponds to the present value of the future cash fl ows generated by the asset during its estimated economic useful life. The recoverable amount is estimated for the asset or cash generating unit to which it belongs. The discount rate used refl ects the weighted average cost of capital (WACC) used by the Galp Energia group.

Impairment losses recognised in prior periods are reversed when they no longer exist or have decreased. Such tests are made whenever there are indications that an impairment recognised in an earlier period has reverted. Reversal of impairment is recognised as a decrease in the income statement caption "Amortisation, depreciation and impairment loss of tangible assets". However, impairment losses are only reversed up to the book value that the asset would present (net of amortisation or depreciation), if the impairment loss had not been booked.

2.5 PROVISIONS

Provisions are recorded when, and only when, the Group has a present obligation (legal or constructive) resulting from a past event, it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed and adjusted at each balance sheet date so as to refl ect the best estimate at that date. Provisions for restructuring costs are recognised by the Group whenever there is a formal detailed restructuring plan.

During the year ended 31 December 2011, there were no transactions that should be classifi ed as restructuring provisions.

2.6 FOREIGN CURRENCY BALANCES AND TRANSACTIONS

Transactions are recorded in the separate fi nancial statements of subsidiaries in their functional currencies, at the exchange rates in force on the dates of the transactions.

Gains and losses resulting from differences between the exchange rates in force on the dates of the transactions and those prevailing at the date of collection, payment or at the end of the reporting period are recorded as income and expenses, respectively, in the consolidated income statement caption "Exchange gain/(loss)".

As of 31 December 2011 and 2010, the Company had no balances denominated in foreign currency.

2.7 INCOME AND ACCRUAL BASIS

Costs and income are recorded in the period to which they relate, independently of when they are paid or received. Where the actual amounts of costs and income are not known they are estimated.

The "Other current assets" and "Other current liabilities" captions include the costs and income from the current period for which the fi nancial receipt or disbursement will only occur in future periods, as well as fi nancial receipts or disbursements that have already occurred, relating to future periods, and that will be charged to the income statement in the respective periods.

The revenue from dividends is recognized when the right of the Company to recognize the amount is established.

2.8 FINANCIAL COSTS ON LOANS OBTAINED

Financial costs on loans obtained are recorded as fi nancial costs on an accrual basis.

'INDIVIDUAL ACCOUNTS

2.9 INCOME TAX

Since 2001, companies with head offi ces in continental Portugal in which the Group has a participation greater than 90% have been taxed in accordance with the special regime for the taxation of groups of companies, taxable income being determined in Galp Energia, SGPS, S. A.

Deferred taxes are calculated based on the liability method and refl ect the temporary differences between the amounts of assets and liabilities for accounting purposes and their amounts for tax purposes.

Deferred tax assets and liabilities are calculated and reviewed annually using the tax rates expected to be in force when the temporary differences revert.

Deferred tax assets are recorded only when there is reasonable expectation of suffi cient future taxable income to use them or whenever there are taxable temporary differences that offset the deductible temporary differences in the period they revert. Temporary differences underlying deferred tax assets are reviewed at each balance sheet date in order to recognise deferred tax assets that were not booked in prior years as they did not fulfi l all requisites and/or to reduce the amounts of deferred tax assets recorded based on the current expectation of their future recovery.

2.10 FINANCIAL INSTRUMENTS

Financial assets and liabilities are booked on the balance sheet when the Group becomes a contractual party to the fi nancial instrument.

a) Investments

Investments are classifi ed as follows:

• Investments at fair value through profi t and loss.

Investments at fair value through profi t or loss are classifi ed as current investments, unless they mature in more than 12 months, in which case they are classifi ed as non-current.

All purchases and sales of these investments are recorded on the date of signing the respective purchase and sale contracts, independently of the fi nancial settlement date.

Investments are initially booked at acquisition cost, which is the fair value of the price paid, including transaction costs.

After initial recognition, investments at fair value through profi t or loss are revalued to fair value with reference to their market value at the reporting date, with no deduction for transaction costs which could be incurred upon sale. Equity instruments not listed on a regulated market and where it is not possible to reliably estimate their fair value, are maintained at cost less any non-reversible impairment losses.

Gains and losses resulting from changes in the fair value of investments at fair value through profi t and loss are recognised in the income statement.

b) Receivables

Receivables are initially recorded at fair value and subsequently measured at amortized cost, less any impairment losses, presented in the caption Impairment losses on receivables.

Usually, the amortized cost of these assets does not differ from their nominal value.

c) Equity or liability classifi cation

Financial liabilities and equity instruments are classifi ed in accordance with their contractual substance, independently of their legal form.

d) Loans

Loans are booked as liabilities based on the nominal amount received, net of related costs.

Financial costs are calculated at the effective interest rate and recognised in the income statement on an accrual basis.

Financial costs include interest and any arrangement fees incurred relating to the assembly and structuring of the loans.

e) Trade and other payables

Accounts payable are recorded at amortized cost. Usually, the amortized cost of these liabilities does not differ from their nominal value.

f) Derivatives Instruments

Hedge accounting

The Company uses derivative instruments in managing its fi nancial risks as a way to hedge such risks. Derivative instruments to hedge fi nancial risks are not used for trading purposes.

Derivative instruments used by the Company to hedge cash fl ows mainly relate to interest rate hedging instruments on loans obtained. The coeffi cients, calculation conventions, interest rate re-fi xing dates and interest rate hedging instrument repayment schedules are in all ways identical to the conditions established in the underlying contracted loans, and as such represent perfect hedges. Derivatives are booked at fair value trough profi t and loss. Whenever the hedged item is not measured at fair value (namely, borrowings measured at amortized cost), the effective hedge is adjusted in the carrying amount of the hedged item through profi t and loss.

The following criteria are used by the Group to classify derivative instruments as cash fl ow hedging instruments:

• The hedge is expected to be highly effective in offsetting the changes in the cash fl ow of the hedged risk;
• The hedging effectiveness can be reliably measured;
• There is adequate documentation of the hedge at the beginning of the operation; and
• The hedged transaction is highly probable.

Interest rate hedging instruments are initially booked at cost, and subsequently revalued to fair value, calculated by independent external entities using generally accepted valuation methods (such as "Discounted Cash-fl ows", among others, depending on the type and nature of the fi nancial derivative). Changes in the fair value of these instruments are presented in the equity caption "Hedging reserves", being transferred to the income statement when the hedged instrument affects profi t and loss.

Hedge accounting is discontinued when the derivative instruments mature or are sold. Where the derivative instrument stops qualifying as a hedging instrument, the accumulated fair value differences deferred in the equity caption "Hedging reserves" are transferred to the income statement or added to the book value of the asset which gave rise to the hedging transaction, and subsequent revaluations are recognised directly in the income statement.

A review was made of the Company's existing contracts so as to detect embedded derivatives, namely contractual clauses that could be considered as fi nancial derivatives. No fi nancial derivatives that should be recognised at fair value have been identifi ed.

INDIVIDUAL ACCOUNTS

When embedded derivatives exist in other fi nancial instruments or other contracts, they are recognised as separate derivatives in situations in which the risks and characteristics are not intimately related to the contracts and in situations in which the contracts are not refl ected at fair value with unrealised gains and losses refl ected in the income statement.

g) Cash and cash equivalents

The amounts included in the caption "Cash and cash equivalents" correspond to cash, bank deposits, term deposits and other treasury applications that mature in less than three months, and that can be realised immediately with insignifi cant risk of change in their value.

For cash fl ow statement purposes, the caption "Cash and cash equivalents" also includes bank overdrafts included in the statement of fi nancial position caption "Bank loans and overdrafts".

2.11 STATEMENT OF THE FINANCIAL POSITION CLASSIFICATION

Realisable assets and liabilities payable in more than one year from the date of the fi nancial statement are classifi ed as non-current assets and non-current liabilities, respectively.

2.12 SUBSEQUENT EVENTS

Events that occur after the balance sheet date that provide additional information on conditions that existed at the end of the reporting period are recognised in the fi nancial statements. Events that occur after the balance sheet date that provide information on conditions that exist after the balance sheet date, if material, are disclosed in the notes to the fi nancial statements.

2.13 JUDGEMENTS AND ESTIMATES

The preparation of fi nancial statements in accordance with generally accepted accounting principles requires estimates to be made that affect the recorded amount of assets and liabilities, the disclosure of contingent assets and liabilities at the end of each year and income and costs recognised each year. The actual results could be different depending on the estimates made.

Certain estimates are considered critical if: (i) the nature of the estimates is considered to be signifi cant due to the level of subjectivity and judgement required to record situations in which there is great uncertainty or are very susceptible to changes in the situation and; (ii) the impact of the estimates on the fi nancial situation or operating performance is signifi cant.

Provisions for contingencies

The fi nal cost of legal processes, settlements and other litigation can vary due to estimates based on different interpretations of the rules, opinions and fi nal assessment of the losses. Consequently, any change in circumstances relating to these types of contingency can have a signifi cant effect on the recorded amount of the provision for contingencies.

2.14 RISK MANAGEMENT AND HEDGING

The Galp Energia Group's operations lead to the exposure to risks of: (i) market risk, as a result of the volatility of prices of oil, natural gas and its derivatives, exchange rates and interest rates; (ii) credit risk as a result of its commercial activity; (iii) liquidity risk as the Group could have diffi culty in obtaining fi nancial resources to cover its commitments.

The Company has an organisation and systems that enable it to identify, measure and control the different risks to which it is exposed and uses several fi nancial instruments to hedge them in accordance with the corporate directives common to the whole Group. The contracting of these instruments is centralised.

The accounting policies explained in this section contain more details of these hedges.

During the year ended 31 December 2011, only material changes required by IFRS 7 - Financial Instruments were disclosed.

2.15 EQUITY

Common shares are classifi ed as equity. The costs directly attributable to the issuance of new shares or other equity instruments are presented as a deduction, net of taxes, of the amount received resulting from the issuance.

3 • COMPANIES INCLUDED IN THE CONSOLIDATION

Not applicable.

4 • INVESTMENTS IN ASSOCIATES

4.1 INVESTMENTS IN SUBSIDIARIES

Investments in subsidiaries as of 31 December 2011 and 2010 are as follows:

	Head offi ce		Percentage interest held			Acquisition cost
Firm	City	Country	2011	2010	Main activity	2011	2010
Galp Energia, S. A.	Lisbon	Portugal	100%	100%	Business Managment and consultancy services.	6,154	6,154
Galp Energia E&P, B. V. (a)	Amsterdam	Netherlands	-	100%	Exploration and production of petroleum and natural gas, as well as trading in petroleum, natural gas and petroleum products; managment of investments in other companies and fi nancing of business and other companies.	-	29,568
Next Priority SGPS, S. A.	Lisbon	Portugal	100%	100%	Management of equity participations.	50	50
Petróleos de Portugal - Petrogal, S. A.	Lisbon	Portugal	100%	100%	Refi ning crude oil and derivatives; transport, distribution and trading of crude oil and derivatives and natural gas; and any other industrial, commercial, research and related services.	803,556	803,556
GDP - Gás de Portugal, SGPS, S. A.	Lisbon	Portugal	100%	100%	Management of equity investments	344,922	344,922
Galp Power , SGPS, S. A.	Lisbon	Portugal	100%	100%	Management of equity investments as an indirect way of exercising business activities.	12,376	12,376
Galp Energia Netherlands, B. V. (a)	Amsterdam	Netherlands	100%	-	Exploration and production of oil and natural gas. Trading of oil, natural gas and petroleum products; management of shareholdings of other companies and fi nancing businesses and companies.	53,987	-
GALP Trading, S. A. (b)	Genéve	Switzerland	100%	-	Development of activities related to the trading of physical crude oil, petroleum products, petrochemicals and natural gas. Business of chartering ships for the shipment of products covered by the trading activity.	92	-
Galp Bioenergy B. V. (a)	Amsterdam	Netherlands	100%	-	Production and trading of biofuels.	3,745	-
						1,224,882	1,196,626

	31 December 2011
	Head offi ce	Total assets	Total liabilities	Equity	Net profi t
Galp Energia, S. A.	Lisbon	36,135	29,896	6,239	3,247
Galp Energia E&P, B. V.	Lisbon	-	-	-	-
Next Priority SGPS, S. A.	Lisbon	51	3	48	(1)
Petróleos de Portugal - Petrogal, S. A.	Lisbon	6,605,977	5,848,600	757,377	103,607
GDP - Gás de Portugal, SGPS, S. A.	Lisbon	1,412,929	1,062,065	350,863	45,655
Galp Power , SGPS, S. A.	Lisbon	162,279	166,242	(3,963)	(695)
Galp Energia Netherlands, B. V.	Amsterdam	55,636	113	55,523	(71)
Galp Trading, S. A.	Genéve	103	-	103	-
Galp Bioenergy, B. V.	Amsterdam	3,788	63	3,725	(21)
		8,276,897	7,106,982	1,169,915	151,721

(a) During the year ended 31 December 2011, Galp Energia group reorganized its company based in Netherlands, as follows:

• The Company subscribed 100% of the share capital in Galp Energia Netherlands B. V. which was incorporated in June 2011 with the purpose of holding the equity investments in exploration and production activities.
• In August 2011, in order to separate the exploration and production business from the biofuel business, Galp Energia E & P B. V. activities were split up. This resulted in the creation of Galp Bioenergy B. V. which now owns the biofuel business. This new company is 100% owned by Galp Energia, SGPS, S. A.
• In September, an exchange of shares between Galp Energia, SGPS, S. A. and Galp Energia B. V. Netherlands ocurred, with the aim that the new company hold the entire stake in Galp Energia E & P B. V. During this process, Galp Energia E & P B. V. changed its name to Galp Brazil Services B. V.

(b) Galp Energia, SGPS, S. A. subscribed 100% of the capital of Galp Trading, S. A. The new Company that was incorporated in August 2011 did not perform any operations during the year ended 31 December 2011.

During the year ended 31 December 2011, the line item in share of results of investments in subsidiaries and jointly controlled entities can be detailed as follows:

	2011	2010
Dividends received	53,880	348,764
Losses calculated on the exchange of shares in subsidiaries	(838)	-
Capital gains on sales of investments and subsidiaries	-	39
	53,042	348,803

4.2 INVESTMENTS IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIES

Participations in associates and jointly controlled entities as of 31 December 2011 and 2010 were as follows:

		Head offi ce	Percentage interest held		Acquisition cost
Firm	City	Country	2011	2010	2011	2010
Adene - Agência para a Energia, S. A.	Lisbon	Portugal	10.98%	10.98%	114	114
OEINERGE-Agência Municipal de Energia e Ambiente	Oeiras	Portugal	1.45%	1.45%	1	1
Central E, S. A.	Lisbon	Portugal	-	0.70%	-	2
Omegas-Sociedade D'Etuded du Gazoduc Magreb-Europe		Morocco	-	-	35	35
Galp Swazilândia		Swaziland	-	-	1	1
Galp Gâmbia		Gambia	-	-	-	-
					151	153

During 2011, the Company sold the 318 shares it held in Central E, S. A., for 5 thousand Euros, with a gain of 3 thousand Euros.

5 • OPERATING INCOME

The operating income of the company for the year ended 31 December 2011 and 2010 were as follows:

Captions	2011	2010
Services rendered	9,088	7,381
Other operating income:	-	-
Supplementary income	299	2,544
	9,387	9,925

The services rendered in the amount of 9,088 thousand Euros, are essentially related to management services provided to other group companies.

Supplementary income refers mainly to charges to other group companies, for expenses incurred on their behalf.

The services rendered by the company in 2011 and 2010 by geographical market are distributed as follows:

	2011	2010
Domestic market	7,863	6,881
Foreign market	1,225	500
	9,088	7,381

6 • OPERATING COSTS

Operating costs for the years ended 31 December 2011 and 2010 are made up as follows:

Captions	2011	2010
External supplies and services:
Other specialized services	4,279	6,331
Travel and accommodation	462	342
Legal services	240	74
Other costs	173	120
Rents	172	238
Insurance	154	231
Studies and projects	151	701
Communication	121	70
Representation costs	67	59
Fuel	65	93
IT services	47	49
Marketing and communication	32	34
Fees	23	20
Gifts	18	58
Offi ce supplies	16	20
Litigation and notaries	8	4
Maintenance and repairs	6	9
Books and technical documentation	2	1
Advertising and publicity	-	35
Tools and utensils	-	1
Cleaning services, hygiene and comfort	-	1
	6,036	8,491
Employee costs:
Remuneration of statutory board members (Note 29)	4,188	4,018
Remuneration of personnel	722	743
Social charges	122	130
Retirement benefi ts - pensions and insurance	-	2
Other insurance	78	97
Other costs	90	43
	5,200	5,033
Amortisation and depreciation:
Depreciation of tangible assets (Note 12)	4	5
Provisions and impairment of receivables:
Provisions and reversals (Note 25)	(106)	3,365
Other operating costs
Other taxes	1,132	514
Other operating costs	355	294
	1,487	808
	12,622	17,703

Other specialized services mainly include remuneration costs of the Board and other key management personnel, 2,060 thousand Euros (Note 29), and corporate services, including accounting services, HR management, general services, fi nancial services and audit services invoiced by the subsidiary Galp Energia S. A. (Note 28).

7 • SEGMENT REPORTING

Not applicable.

8 • FINANCIAL INCOME AND COSTS

Financial income and fi nancial costs for the years ended 31 December 2011 and 2010 were as follows:

Financial income and costs	2011	2010
Financial income
Interest - related parties (Note 28)	157,922	88,140
Interest - other	527	158
Other fi nancial income	2.970	3,813
	161,419	92,111
Financial costs
Interest - related parties (Note 28)	3,593	749
Interest - other	109,726	63,742
Commissions	5,288	4,692
Other fi nancial costs	4,911	4,911
	123,519	74,094

9 • INCOME TAX

The company and several of its subsidiaries are taxed in accordance with the special regime for the taxation of groups of companies, taxable income being determined in Galp Energia, SGPS, S. A.

However, estimated income tax of the Company and its subsidiaries is booked based on their individual tax results which, for the year ended in 31 December 2011, amounted to an account payable and receivable from these Group companies of 30,931 thousand Euros and 31,317 thousand Euros (Note 28), respectively.

The following matters could affect income tax payable in the future:

• (i) In accordance with current Portuguese legislation, corporate income tax returns are subject to review and correction by the tax authorities for a period of four years (Social Security can be reviewed for fi ve years), except when there are tax losses carried forward, tax benefi ts have been granted or there are claims or appeals in progress where, depending on the circumstances, the period can be extended or suspended;
• (ii) The Group's tax returns for the years 2008 to 2011 are still subject to review. Galp's Board of Directors believes that any corrections arising from inspections by the tax authorities of these tax returns will not have a signifi cant impact on the separate fi nancial statements as of 31 December 2011 and 2010;
• (iii) In accordance with current tax legislation, gains and losses resulting from recognition of the results of subsidiaries and associated companies through application of the equity method are not considered as income or expenses for corporate income tax purposes in the year they are recognised for accounting purposes. Dividends are taxed in the year they are attributed.

Income tax for the years ended 31 December 2011 and 2010 were as follows:

	Assets		Liabilities
	2011	2010	2011	2010
Group companies:
Income tax receivable / payable (Note 28)	30,930	40,025	31,317	18,572
State
Tax receivable / payable	21,932	10,629	-	34,456
	52,862	50,654	31,317	53,028

The estimated income tax of the Company based on its taxable income in the fi scal year ended 31 December 2011 represents a tax payable of 9,941 thousand Euros and was calculated as follows:

Income Tax	2011	2010
Current income tax	9,917	4,208
Excess/insufi ciency of income tax of the preceding year	60	332
Deferred Tax	(36)	15
	9,941	4,555

A reconciliation of the income tax for the years ended in 31 December 2011 and 2010 and details of deferred taxes is presented below:

Current income tax	2011	2010
Profi t before income tax in accordance with the IFRS/IAS	87,093	359,702
Increase in taxable income	1,100	3,633
Non tax deductible provisions	-	3,235
Non tax deductible social costs	96	136
Other increases	166	262
Application of the equity method	838	-
Decrease in taxable income	(53,939)	(348,803)
Other deductions	(59)	(54)
Application of the equity method	(53,880)	(348,749)
Taxable income	34,254	14,532
Income tax	9,369	3,946
Municipal surcharge	514	218
Autonomous taxation	34	44
Estimated current income tax for the year	9,917	4,208
Deferred tax and excess estimate for the year	24	347
Income tax	9,941	4,555
Effective tax rate	11.41%	1.27%

Deferred taxes

The balance of deferred tax assets and liabilities as of 31 December 2011 and 2010 were as follows:

	Assets		Liabilities
	2011	2010	2011
Financial instruments	533	-	299
Adjustments to tangible and intagible assets	6	6	-
Other	236	200	-
	775	206	299

INDIVIDUAL ACCOUNTS	AUDITORS' REPORT	STATUTORY AUDITORS' REPORT	SUPERVISORY BOARD'S REPORT AND OPINION

The variances in deferred taxes for the years ended 31 December 2011 and 2010 were as follows:

	Assets		Liabilities
	2011	2010	2011
Beginning balance	206	221	-
Financial instruments	533	-	299
Other	36	(15)	-
Ending balance	775	(206)	299

10 • EARNINGS PER SHARE

Earnings per share for the years ended 31 December 2011 and 2010 were as follows:

	2011	2010
Net income
Net income for purposes of calculating earnings per share (net profi t for the year)	77,152	355,147
Number of shares
Weighted average number of shares for purposes of calculation earnings per shares (Note 19)	829,250,635	829,250,635
Basic earnings per share (amounts in Euros)	0.09 €	0.43 €

As there are no situations that give rise to dilution, the diluted earnings per share are the same as the basic earnings per share.

11 • GOODWILL

Not applicable.

12 • TANGIBLE AND INTANGIBLE ASSETS

Tangible assets are recorded in accordance with the accounting policy stated in Note 2.3. The depreciation rates applied are explained in the same note. In the years 2011 and 2010 tangible assets had the following changes:

	2011					2010
	Basic equipment	Transport equipment	Administrative equipment	Other tangible assets	Total of tangible assets	Basic equipment	Transport equipment	Administrative equipment	Other tangible assets	Total of tangible assets
Acquisition cost:
Balance at 1 Januray	33	52	295	1,009	1,389	33	52	295	1,009	1,389
Balance at 31 December	33	52	295	1,009	1,389	33	52	295	1,009	1,389
Depreciation
Balance at 1 Januray	(33)	(52)	(286)	(1,009)	(1,380)	(33)	(52)	(281)	(1,009)	(1,375)
Depreciation for the year (Note 6)	-	-	(4)	-	(4)	-	-	(5)	-	(5)
Balance at 31 December	(33)	(52)	(290)	(1,009)	(1,384)	(33)	(52)	(286)	(1,009)	(1,380)
Accumulated Balance	(33)	(52)	(290)	(1,009)	(1,384)	(33)	(52)	(286)	(1,009)	(1,380)
Net amount:
at 31 December	-	-	5	-	5	-	-	9	-	9

In 2011 and 2010 intangible assets had the following changes:

	2011		2010
	Industrial property and other rights	Total intangible assets	Industrial property and other rights	Total intangible assets
Acquisition cost:
Balance at 1 January	8	8	8	8
Balance at 31 December	8	8	8	8
Depreciation:
Balance at 1 January	(8)	(8)	(8)	(8)
Balance at 31 December	(8)	(8)	(8)	(8)
Net amount:
Balance at 31 December	-	-	-	-

13 • GOVERNMENT GRANTS

Not applicable.

14 • OTHER RECEIVABLES

The non-current and current captions "Other receivables" as of 31 December 2011 and 2010 were made up as follows:

	2011	2010
Captions	Current	Non current	Current	Non current
State and other public entities
Value Added Tax - Reimbursement requested	797	-	797	-
Other	109	-	109	-
Other receivables - associated, jointly controlled, related and participated companies	76	-	92	-
Loans to associated, jointly controlled, related and participated companies (Note 28)	275,534	3,111,704	171,111	2,850,635
Advances to trade suppliers	11	-	137	-
Personnel	119	-	200	-
Other receivables	433	-	1,194	-
	277,080	3,111,704	173,640	2,850,635
Accrued income (Note 28):
Accrued interest	77,324	-	13,581	-
Other accrued income	27	-	101	-
	77,350	-	13,682	-
Deferred costs:
Interest and other fi nancial costs	701	-	358	-
Prepaid insurance	69	-	67	-
	771	-	424	-
	355,201	3,111,704	187,746	2,850,635
Impairment of other receivables	(286)	-	(286)	-
	354,916	3,111,704	187,461	2,850,635

15 • TRADE RECEIVABLES

As of 31 December 2011 and 2010, the caption of "Trade Receivables" balances amounted of 2,722 thousand Euros and 4,836 thousand Euros, respectively, regarding exclusively to related parties (Note 28).

16 • INVENTORIES

Not applicable.

17 • OTHER INVESTMENTS

As of 31 December 2011, other non-current investments, assets and liabilities, in respect of interest rate swaps are measured at fair value and amount to 1,032 thousand Euros and 1,756 thousand Euros respectively (Note 27).

18 • CASH AND CASH EQUIVALENTS

The caption "Cash and cash equivalents" as of 31 December 2011 and 2010 was as follows:

Captions	2011	2010
Cash	6	8
Demand deposits	56,663	426
Cash and cash equivalents in the statement of fi nancial position	56,669	434
Bank overdrafts (Note 22)	(26,130)	(75,991)
Cash and cash equivalents in the cash fl ow statement	30,539	(75,557)

19 • SHARE CAPITAL

Capital structure

The capital structure as of 31 December 2011 was unchanged in relation to the preceding year. The Company's fully subscribed and paid up share capital consists of 829,250,635 shares (Note 10) of 1 Euro each.

As a result of the above, the Company's fully subscribed and paid up share capital as of 31 December 2011 and was held by the following entities:

	Number of shares	% of capital
Amorim Energia, B. V.	276,472,161	33.34%
Eni, S. p. A.	276,472,161	33.34%
Parpública – Participações Públicas, SGPS, S. A.	58,079,514	7.00%
Caixa Geral de Depósitos, S. A.	8,292,510	1.00%
Other shareholders	209,934,289	25.32%
	829,250,635	100.00%

20 • OTHER RESERVES

In accordance with the Commercial Company Code ("Código das Sociedades Comerciais") the Company must transfer a minimum of 5% of its annual net profi t to a legal reserve until the reserve reaches 20% of share capital. The legal reserve cannot be distributed to the shareholders but may in certain circumstances be used to increase capital or to absorb losses after all the other reserves have been used.

As of 31 December 2011 and 2010 these captions were as follow:

	2011	2010
Legal reserve	165,850	165,850
Free reserve	27,977	27,977
	193,827	193,827

On 31 December 2011 and 2010, the legal reserve is fully provided for in accordance with the commercial legislation.

21 • NON-CONTROLLING INTERESTS

Not applicable.

22 • LOANS

Detail of loans

Loans obtained as of 31 December 2011 and 2010 were as follows:

	2011		2010
	Current	Non-current	Current	Non-current
Bank loans:
Domestic loans	685,250	-	150,000	250,000
Foreign loans	13,916	629,904	3,716	601,319
Bank overdrafts (Note 18)	26,130	-	75,991	-
	725,295	629,904	229,707	851,319
Bank loans:
2009 Issue	280,000	420,000	-	700,000
2010 Issue	-	300,000	-	300,000
2011 Issue	-	185,000	-	-
	280,000	905,000	-	1,000,000
	1,005,295	1,534,904	229,707	1,851,319

Description of main loans

Bank loans

As of 31 December 2011 the Company subscribed for underwritten commercial paper programs of up to 1,060,000 thousand Euros, of which 200,000 thousand Euros are medium and long term and 860,000 thousand Euros are short term.

The loans bear interest at Euribor, for the period of the issuance, in force on the second business day prior to the subscription date, added by variable spreads defi ned in the contractual conditions of the commercial paper programs subscribed by the Company. The interest rates are applied to the amount of each issuance and remain unchanged during the entire period.

In 2006, the Company obtained a non-current loan of 58,000 thousand Euros from the European Investment Bank for the exclusive purpose of implementing a project related with the construction and administration of a cogeneration unit at the Sines refi nery. The loan was received in two instalments of 39,000 thousand Euros and 19,000 thousand Euros, that pay interest at a fi xed rate and a revisable fi xed rate, respectively. The loan is reimbursed on "semester" basis, with maturing date 15 September 2021 and 15 March 2022, respectively.

In 2008, the Company contracted an additional non-current loan of 50,000 thousand Euros with the European Investment Bank for the exclusive purpose of construction and administration of a co-generating plant in the Matosinhos refi nery. The loan bears interest at a revisable fi xed rate, with a maturity of nine years.

In 2009, The Company contracted a non-current loan of 500,000 thousand Euros with the European Investment Bank, with the purpose of fi nancing the conversion of the Sines and Matosinhos refi neries. The loan was received in two instalments of 300,000 thousand Euros and 200,000 thousand Euros each payable over fi fteen years, including a grace period of two years and thirteen years of repayment. The loan bears interest at a revisable fi xed rate.

The loans from the European Investment Bank, excluding the instalment of 200,000 thousand Euros, are guaranteed by Petrogal, S. A.

The remaining loans with the European Investment Bank, in the amount of 200,000 thousand Euros are guaranteed by Banking Syndicate.

Bonds

2009 Issue – Galp Energia, SGPS, S. A.

On 13 May 2009, the company issued bonds totalling 700,000 thousand Euros, for private subscription, to fi nance its investment plan. The bonds bear interest at a six month Euribor rate added by a variable spread and has a reimbursement of 40% on 20 May 2012 and 60% on 20 May 2013.

The issuance was organized by Banco Santander Totta, S. A. and Caixa – Banco de Investimento, S. A.

The issuance was taken by a group of fourteen banks, national and international: Banco Santander Totta, S. A., Caixa – Banco de Investimento, S. A., Banco Espírito Santo de Investimento, S. A., Banco BPI, S. A., Banco Bilbao Vizcaya Argentaria (Portugal), S. A., BNP Paribas e a Caixa d'Estalvis y Pensiones de Barcelona (la Caixa) acting as Joint Lead Managers. As Co-lead Managers: Caixa Económica Montepio Geral, Banco Millennium BCP Investimento, S. A., BB Securities Ltd. (Banco do Brasil), The Bank of Tokyo-Mitsubishi UFJ, Ltd, Banco Itaú Europa, S. A. – Sucursal Financeira Internacional, Merril Lynch International and Société Générale.

2010 Issue – Galp Energia, SGPS, S. A.

On 12 November 2010, the Company issued bonds totalling 300,000 thousand Euros, for private subscription, to fi nance its investment plan. The bonds bear interest at six month Euribor rate added of a variable spread and are reimbursed in 50% on 12 November 2013 and 50% on 12 November 2014.

The issuance was taken by a group of six international banks: Citibank International plc, ING Belgium SA/NV – branch in Portugal, Banco Itaú Europa, S. A. – Sucursal Financeira Internacional, Banco Español de Credito S. A. (Banesto), Caixa d´Estalvis i Pensions de Barcelona "la Caixa" and BB Securities Limited.

2011 Issue – Galp Energia, SGPS, S. A.

On 3 August 2011, the Company issued bonds totalling 185,000 thousand Euros, for private subscription, to fi nance its investment plan. The bonds bear interest at six month Euribor rate added of a variable spread and with a reimbursement on 3 August 2014.

The issuance was taken by a group of three international banks: Banco Bilbao Vizcaya Argentaria,S. A., J.P. Morgan Securities Ltd. and Banco Itaú BBA International, S. A.(London).

23 • RETIREMENT AND OTHER EMPLOYEE BENEFITS

Not applicable.

24 • OTHER PAYABLES

The current caption "Other payables" as of 31 December 2011 and 2010 were as follows:

		Current
Captions	2011	2010
State and other public entities
Value Added Tax	442	257
Social Security contributions	12	14
Personnel and corporate income tax withheld	99	94
Personnel	48	66
Loans - Associated, related and participated companies (Note 28)	428,810	320,524
Other creditors	27	27
	429,438	320,982
Accrued costs:
Vacation pay, vacation subsidy and corresponding personnel costs	441	450
External supplies and services	130	192
Productivity bonus	-	267
Accrued insurance premiums	26	-
Accrued interest	20,772	13,938
Financial costs	23	1
Other accrued costs	626	1,732
	22,018	16,580
	451,456	337,562

25 • PROVISIONS

The changes in provisions in the year ended 31 December 2011 were as follows:

		2011
Captions	Opening balance	Increases	Decreases (Note 6)	Adjustments	Ending balance
Legal actions	468	(29)	(106)	-	333
Taxes	6,607	-	-	-	6,607
Other	12	-	-	(12)	-
	7,087	(29)	(106)	(12)	6,940

Captions		2010
	Opening balance	Increases	Decreases	Ending balance
Legal actions	333	138	(3)	468
Taxes	3,377	3,230	-	6,607
Other	6	6	-	12
	3,716	3,374	(3)	7,087

26 • TRADE PAYABLES

As of 31 December 2011 and 2010 the amounts recorded in the caption "Trade payables" were as follows:

Captions	2011	2010
Trade payables - current account	572	320
Trade payables - invoices pending	33	32
	605	352

27 • OTHER FINANCIAL INSTRUMENTS – DERIVATIVES

The characteristics of fi nancial instruments as of 31 December 2011 were as follows:

				Fair value of the derivatives
Type of derivative over Interest rate	Interest rate	Nominal value thousand Euros	Maturity	in thousand Euros
Assets	Fair value through profi t and loss
Interest rate swaps	Pays between 3.438% and 3.872%	tEur 30,000	2013	157
	Receives Euribor 6 m
	Cash fl ow coverage
Interest rate swaps	Pays between 1.305% and 1.610%	tEur 265,000	2013-2014	876
	Receives Euribor 6m
Liabilities	Fair value through profi t and loss
Interest rate swaps	Pays 3.330%	tEur 29,639	2013	(74)
	Receives Euribor 6m
	Cash fl ow coverage
Interest rate swaps	Pays between 1.480% and 1.610%	tEur 280,000	2013-2014	(2,267)
	Receives Euribor 6m
				(724)

Interest rate swaps

The Company's derivatives fi nancial portfolio, classifi ed as fi nancial assets or liabilities at fair value through profi t and loss, as at 31 December 2011 had the following variances:

	Assets	Liabilities
Interest rate derivatives	Non-current	Non-current
Fair value at 1 January 2010	-	-
Sold during the year	(972)	-
Increase /(decrease) on the sale refl ected in the income statement	972	-
Increase /(decrease)in fair refl ected in the income statement	702	-
Fair value at 31 December 2010	702	-
Sold during the year	(1,005)	-
Increase /(decrease) on the sale refl ected in the income statement	1,005	-
Increase /(decrease)in fair refl ected in the income statement	(545)	(74)
Increase /(decrease)in fair refl ected in Equity	875	(1,682)
Fair value at 31 December 2011 (Note 17)	1,032	(1,756)

Financial derivatives are defi ned as, in accordance with IAS/IFRS, "fi nancial assets at fair value through profi t and loss" or "fi nancial liabilities at fair value through profi t and loss". The interest rate fi nancial derivatives that are contracted to hedge the variance in interest rates on borrowings are defi ned as "cash fl ow hedges". Interest rate derivatives that are contracted to hedge changes in fair value or other risks that might alter the effects on profi t and loss arising from borrowings are defi ned as "fair value hedges".

In accordance with IFRS 7 an entity must classify how it measures fair value, in a hierarchy that refl ects the meaning of the inputs used in measuring. The fair value hierarchy must have the following levels:

• Level 1 - quoted prices (not adjusted) for similar instruments;

• Level 2 - directly observable market inputs other than Level 1 inputs (derivatives price);

• Level 3 - inputs not based on observable market data (not observable).

The fair value fi nancial derivatives were determined by fi nancial entities using observable market inputs and used generally accepted techniques and models (Level 2).

28 • RELATED PARTIES

Balances and transactions with related parties in the year ended 31 December 2011 were as follows:

Receivables:

			2011
		Non-Current			Current
Related parties	Total of related parties	Loans granted (Note 14)	Trade receivables (Note 15)	Loans granted (Note 14)	Other receivables (Note 9 and 14)	Accruals and deferrals (Note 14)
Petrogal, S. A.	2,989,478	2,675,000	1,533	236,693	751	75,501
GDP Gás de Portugal, SGPS, S. A.	279,474	278,743	-	-	137	594
Galp Power, SGPS, S. A.	163,039	157,871	-	3,916	-	1,252
Lisboagás, S. A.	25,342	-	-	16,190	9,153	-
Sinecogeração, S. A.	7,143	-	-	-	7,143	-
Galp Gás Natural, S. A.	6,843	-	-	-	6,843	-
Transgás Armazenagem, S. A.	4,873	-	-	4,594	279	-
Galp Power, S. A.	4,215	-	80	4,136	-	-
Galp Açores, Lda.	3,958	-	32	3,927	-	-
Transgás, S. A.	3,217	-	-	3,217	-	-
GDP Serviços, S. A.	2,192	-	156	-	2,036	-
Galp Energia, S. A.	1,674	-	-	-	1,674	-
Galpgeste, S. A.	1,600	-	-	1,256	344	-
Lisboagás CUR, S. A.	1,499	-	-	-	1,499	-
Galp Madeira, Lda.	1,185	-	3	1,181	-	-
Petrogal Brasil	650	-	650	-	-	-
Tanquisado, S. A.	558	-	-	-	558	-
Gasinsular-Combustíveis do Atlântico	402	-	-	400	-	2
Duriensegás, S. A.	254	-	-	-	254	-
Serviexpress Portugal, S. A.	116	-	-	-	116	-
Galp Exploração	101	-	101	-	-	-
Adene-Agência para a Energia, S. A.	90	90	-	-	-	-
Paxgás, S. A.	77	-	-	5	72	-
Galp Brazil Services B. V.	75	-	75	-	-	-
Petrogal Moçambique, Lda.	58	-	39	-	19	-
Medigás, S. A.	37	-	-	-	36	-
Petrogás Guiné-Bissau, Lda.	33	-	16	-	17	-
Soturis, S. A.	29	-	-	-	29	-
Fast Access, S. A.	26	-	22	-	4	-
Dianagás, S. A.	25	-	-	19	7	-
Tagusgás, S. A.	19	-	8	-	11	-
Número Um, S. A.	15	-	4	-	11	-
Petrogal Angola, Lda.	7	-	-	-	7	-
Petromar, Lda.	6	-	-	-	6	-
Tagus Re, S. A.	6	-	-	-	6	-
Petrogal Cabo Verde, Lda.	4	-	-	-	4	-
CORS, S. A.	3	-	3	-	-	-
Galpfer, S. L.	3	-	-	-	3	-
ASA - Abast. e Serv. Aviação, S. A.	1	-	-	-	1	-
Eni, S. p. A.	1	-	1	-	-	-
Sacor Maritima, S. A.	1	-	1	-	-	-
CLC, S. A.	1	-	1	-	-	-
Gasfomento, S. A.	(3)	-	(3)	-	-	-
	3,498,326	3,111,704	2,722	275,534	31,021	77,351

The amount of 3,111,704 thousand Euros booked in the caption non-current granted loans, essentially respects to shareholder loans granted to related parties which bear interests at six month Euribor rate added of a 3% spread and do not have a defi ned repayment plan. According to the Board of Directors' expectations, the loans will not be received in the short term.

The amount of 275,534 thousand Euros presented as current loans granted consists essentially of "cash pooling" loans granted to Group companies. These loans bear normal market interest rates.

The amount of 31,021 thousand Euros booked in the capiton of other current receivables includes 30,931 thousand Euros concerning income tax receivable from companies under the special regime for the taxation of groups of companies (Note 9).

The amount of 77,350 thousand Euros presented in the caption of current assets accruals and deferrals refers to accrued interest on granted loans at 31 December 2011, to other group companies.

	2010
		Non-Current			Current
	Total of related	Loans granted	Trade receivables	Loans granted	Other receivables	Accruals and deferrals
Related parties	parties	(Note 14)	(Note 15)	(Note 14)	(Note 9 and 14)	(Note 14)
Petrogal, S. A.	2,537,308	2,500,000	4,238	-	20,737	12,333
GDP Gás de Portugal, SGPS, S. A.	217,462	216,736	-	-	316	410
Galp Power, SGPS, S. A.	134,647	133,809	-	-	-	838
Transgás, S. A.	96,606	-	-	96,606	-	-
Lisboagás, S. A.	34,692	-	-	32,687	2,005	-
Duriensegás, S. A.	10,350	-	-	9,798	552	-
Medigás, S. A.	8,673	-	-	8,670	3	-
Galp Power, S. A.	5,600	-	78	5,460	62	-
GDP Serviços, S. A.	5,363	-	154	3,153	2,056	-
Dianagás, S. A.	5,191	-	-	5,117	74	-
Sinecogeração, S. A.	4,405	-	-	-	4,405	-
Lisboagás CUR, S. A.	4,345	-	-	2,821	1,524	-
Galp Gás Natural, S. A.	4,219	-	-	-	4,219	-
Paxgás, S. A.	3,520	-	-	3,429	91	-
Galp Energia, S. A.	3,000	-	-	-	2,899	101
Transgás Armazenagem, S. A.	1,823	-	-	1,467	356	-
Soturis, S. A.	1,425	-	-	1,384	42	-
Tanquisado, S. A.	379	-	-	-	379	-
Petrogal Cabo Verde, Lda.	371	-	-	335	36	-
Sucursal España	250	-	250	-	-	-
Galpgeste, S. A.	202	-	-	-	202	-
Galp Energia E&P, B. V.	190	-	-	185	5	1
Serviexpress Portugal, S. A.	115	-	-	-	115	-
Adene-Agência para a Energia, S. A.	90	90	-	-	-	-
Petrogal Moçambique, Lda.	58	-	39	-	19	-
Petrogás Guiné-Bissau, Lda.	33	-	16	-	17	-
Fast Access, S. A.	26	-	22	-	4	-
Petromar, Lda.	20	-	(2)	-	23	-
Tagusgás, S. A.	19	-	8	-	11	-
Tagus Re, S. A.	16	-	-	-	16	-
Galp Açores, Lda.	16	-	16	-	-	-
Galp Madeira, Lda.	15	-	15	-	-	-
Número Um, S. A.	15	-	4	-	11	-
Petrogal Angola, Lda.	7	-	-	-	7	-
Galpfer, S. L.	3	-	-	-	3	-
ASA - Abast. e Serv. Aviação, S. A.	1	-	-	-	1	-
Eni, S. p. A.	1	-	1	-	-	-
CLC, S. A.	1	-	1	-	-	-
Gasfomento, S. A.	(4)	-	(4)	-	-	-
Combustíveis Liquídos, Lda.	(10)	-	-	-	(10)	-
	3,080,443	2,850,635	4,835	171,111	40,180	13,682

The amount of 2,850,635 thousand Euros booked in the caption non-current granted loans, essentially respects to shareholder loans granted to related parties which bear interests at six month Euribor rate added of a 3% spread and do not have a defi ned repayment plan. According to the Board of Directors' expectations, the loans will not be received in the short term.

The amount of 171,111 thousand Euros presented as current loans granted consists essentially of "cash pooling" loans granted to Group companies. These loans bear normal market interest rates.

The amount of 40,180 thousand Euros booked in the caption of other current receivables includes tEuros 40,025 concerning income tax receivable from companies under the special regime for the taxation of groups of companies (Note 9).

The amount of 13,681 thousand Euros presented in the caption of current assets accruals and deferrals refers to accrued interest on granted loans at 31 December 2010.

Payables:

			2011
			Current
	Total of related	Trade	Loans obtained	Income tax	Acccruals and
Related parties	parties	payables	(Note 24)	payable (Note 9)	deferrals
Galp Gás Natural, S. A.	148,926	8	148,919	-	-
Galp Energia Portugal Holding, B. V.	135,996	-	135,500	-	496
Galp Exploração e Produção	41,867	-	41,867	-	-
Tagus Re, S. A.	28,506	-	28,400	-	106
Petrogal, S. A.	25,909	68	-	25,841	-
Sinecogeração, S. A.	18,569	-	18,514	55	-
Tanquisado S. A.	16,497	-	16,495	2	-
Sacor Maritima, S. A.	13,912	32	13,879	-	-
Galp Energia, S. A.	8,663	260	8,385	9	9
Lisboagás CUR, S. A.	5,444	-	5,444	-	-
GDP Distribuição, SGPS, S. A.	2,876	-	2,876	-	-
GDP Serviços, S. A.	2,707	-	2,707	-	-
Galp Power, S. A.	1,864	-	-	1,864	-
CLT Lda.	1,749	-	744	1,005	-
Galp Exploração Timor Leste, S. A.	1,567	-	1,543	24	-
Portocogeração, S. A.	1,276	-	1,250	26	-
Galp Power, SGPS, S. A.	1,272	-	419	852	-
Transgás, S. A.	1,094	-	-	1,094	-
Eni, S. p. A.	846	220	-	-	626
SM Internacional, S. A.	616	1	615	-	-
CORS, Lda.	537		332	204	-
Gasmar, S. A.	383	1	382	-	-
Medigás, S. A.	269	-	269	-	-
Galpgeste, S. A.	251	-	-	251	-
Tripul	145	-	144	-	-
Duriensegás, S. A.	120	-	120	-	-
Soturis, S. A.	25	-	5	21	-
Transgás Armazenagem, S. A.	23	-	-	23	-
Serviexpress Portugal, S. A.	17	-	-	17	-
Combustíveis Liquidos, Lda.	12	-	-	12	-
Galp Gás Natural Distribuição, SGPS, S. A.	11	-	-	11	-
Galp Madeira, Lda.	8	8	-	-	-
Galp Açores, Lda.	2	2	-	-	-
Gasfomento, S. A.	1	(4)	-	5	-
	461,961	598	428,810	31,317	1,236

The amount of 428,810 thousand Euros booked as current obtained loans includes 135,500 thousand Euros obtained from Galp Energia Portugal Holding, B. V., 28,400 thousand Euros obtained from Tagus,Re, S. A. and 264,910 thousand Euros from "cash pooling" obtained from related parties. These loans bear normal market interest rates.

The amount of 31,317 thousand Euros booked in the current caption other payables, respects to income tax payable to companies under the special regime for the taxation of groups of companies (Note 9).

			2010
			Current
	Total of related	Trade	Loans obtained	Income tax	Acccruals and
Related parties	parties	payables	(Note 24)	payable (Note 9)	deferrals
Combustíveis Liquidos, S. A.	6	-	-	6	-
Eni, S. p. A.	1,455	84	-	-	1,371
Galp Energia Portugal Holding, B. V.	103,170	-	102,750	-	420
Gasfomento, S. A.	-	(4)	-	4	-
GDP Distribuição, SGPS, S. A.	8,538	-	8,538	-	-
GALP Power, SGPS, S. A.	2,921	-	2,051	870	-
Galp Exploração Timor Leste, S. A.	2,792	-	2,794	(2)	-
Galp Energia, S. A.	8,693	290	8,358	1	44
Petrogal, S. A.	56,945	56	43,678	13,179	32
Soturis, S. A.	21	-	-	21	-
Galpgeste, S. A.	443	-	443	-	-
Sacor Maritima, S. A.	15,695	7	15,687	-	-
Gasmar, S. A.	475	-	475	-	-
SM Internacional, S. A.	617	-	617	-	-
Tripul, S. A.	108	-	108	-	-
Galp Power, S. A.	2,673	-	-	2,673	-
Galp Exploração, S. A.	15,148	-	15,148	-	-
Galp Açores, Lda.	1,318	-	1,318	-	-
Galp Madeira, Lda.	4,753	3	4,750	-	-
Tanquisado S. A.	15,754	-	15,737	18	-
CLT Lda.	2,610	-	1,857	753	-
CORS, Lda.	1,490	1	1,489	-	-
Serviexpress Portugal, S. A.	17	-	-	17	-
Galp Gás Natural, S. A.	93,541	13	93,524	-	4
Transgás, S. A.	925	-	-	925	-
Sinecogeração, S. A.	667	-	612	55	-
Portcogeração, S. A.	625	-	592	33	-
Galp central de Ciclo Combinado, S. A.	17	-	-	17	-
Galp Gás Natural Distribuição, SGPS, S. A.	2	-	-	2	-
	341,419	450	320,524	18,572	1,871

The amount of 320,524 thousand Euros recorded as current obtained loans includes 102,750 thousand Euros obtained from Galp Energia Portugal Holding, B. V. and 217,174 thousand Euros from "cash pooling" obtained from related parties. These loans bear normal market interest rates.

The amount of 18,572 thousand Euros recorded in the current caption other payables, in respect of income tax payable to companies under the special regime for the taxation of groups of companies (Note 9).

INDIVIDUAL ACCOUNTS AUDITORS' REPORT STATUTORY AUDITORS' REPORT SUPERVISORY BOARD'S REPORT AND OPINION
-----------------------------------------------------------------------------------------------------------------

Transactions:

	2011
Related parties	Operating cost	Operating income	Financial cost (Note 8)	Financial income (Note 8)
Amorim, B. V.	536	-	-	-
CLT, Lda.	-	-	5	(18)
CORS, S. A.	-	-	1	(3)
Dianagás, S. A.	-	-	-	(201)
Duriensegás, S. A.	-	-	1	(334)
Eni, S. p. A.	1,598	-	-	-
Galp Exploração Timor Leste, S. A.	-	-	21	-
Galp Açores, Lda.	-	(156)	39	(18)
Galp Brasil Serviços, B. V.	-	(75)	-	(5)
Galp Energia España, S. A.	5	-	-	-
Galp Energia Portugal Holding, B. V.	-	-	1,853	-
Galp Energia, S. A.	2,340	(28)	77	(4)
Galp Exploração, S. A.	-	(1,045)	8	(2,427)
Galp Gás Natural, S. A.	61	-	732	(50)
Galp Madeira, Lda.	-	(156)	109	(4)
Galp Power, S. A.	-	(778)	1	(298)
Galp Power, SGPS, S. A.	-	-	35	(6,185)
Galpgeste, S. A.	-	-	14	(7)
GásInsular, Lda.	-	-	-	(31)
Gasmar, S. A.	-	-	4	-
GDP Gás de Portugal, SGPS, S. A.	-	-	120	(10,490)
GDP Serviços, S. A.	-	(1,674)	8	(95)
Lisboagás CUR, S. A.	-	-	55	(15)
Lisboagás, S. A.	-	-	1	(457)
Medigás, S. A.	-	-	-	(337)
Paxgás, S. A.	-	-	-	(148)
Petrogal Brasil	-	(650)	-	-
Petrogal, S. A.	632	(4,310)	8	(132,362)
Petrogal, Sucursal España	-	(500)	-	(11)
PortCogeração, S. A.	-	-	-	(400)
Sacor Maritima, S. A.	-	-	167	(1)
Sinecogeração, S. A.	-	-	131	-
SM Internacional, S. A.	-	-	7	(1)
Soturis, S. A.	-	-	2	(3)
Tagus Re, S. A.	-	(11)	106	-
Tanquisado S. A.	-	-	84	(2)
Transgás Armazenagem, S. A.	-	-	1	(100)
Transgás, S. A.	-	-	2	(3,915)
Tripul, S. A.	-	-	1	-
	5,172	(9,383)	3,593	(157,922)

The amount of 5,102 thousand Euros recorded as operational costs, includes of 2,134 thousand Euros related with Board costs charged by the shareholders Eni, S. p. A. and Amorim B. V., and 2,056 thousand Euros regarding services rendered by the subsidiary Galp Energia, S. A., namely consulting services and management support for accounting, treasury, fi nancial management, administrative and logistics, purchasing and procurement, auditing, information systems, human resources and training.

The amount of 9,383 thousand Euros booked as other operating income in 2011, includes the amount of 9,088 thousand Euros regarding management services and 245 thousand Euros of recharged expenses to other group companies.

The amount of 157,922 thousand Euros refers to accrued interest on loans granted to related parties during 2011.

	2010
Related parties	Operating cost	Operating income	Financial cost (Note 8)	Financial income (Note 8)
Amorim, B. V.	586	-	-	-
CLT, Lda.	-	-	(16)	1
CORS, S. A.	-	-	-	5
Dianagás, S. A.	-	-	(105)	-
Duriensegás, S. A.	-	-	(206)	-
Eni, S. p. A.	2,683	-	-	-
Galp Exploração Timor Leste, S. A.	-	-	-	14
Galp Açores, Lda.	-	(156)	(1)	8
Galp Energia España, S. A.	1	-	-	-
Galp Energia Portugal Holding, B. V.	-	-	(4)	435
Galp Energia, S. A.	2,272	(219)	(2)	14
Galp Exploração, S. A.	-	(1,046)	(1,053)	4
Galp Gás Natural, S. A.	62	(411)	(6)	143
Galp Gás Propano, S. A.	-	-	-	7
Galp Madeira, Lda.	-	(156)	-	20
Galp Power, S. A.	-	(780)	(117)	-
Galp Power, SGPS, S. A.	-	-	(3,949)	8
Galpgeste, S. A.	-	-	(1)	5
GásInsular, Lda.	-	-	(6)	-
Gasmar, S. A.	-	-	-	1
GDP Distribuição, SGPS, S. A.	-	-	(8,050)	7
GDP Serviços, S. A.	-	(2,074)	(10)	4
Lisboagás, S. A.	-	-	(731)	-
Lisboagás CUR, S. A.	-	-	(22)	6
Lusitaniagás, S. A.	-	-	(176)	-
Medigás, S. A.	-	-	(193)	-
Paxgás, S. A.	-	-	(66)	-
Petrogal, S. A.	675	(4,446)	(70,974)	3
PortCogeração, S. A.	-	(2)	(76)	-
Sacor Maritima, S. A.	-	-	-	43
Sinecogeração, S. A.	-	-	(108)	5
SM Internacional, S. A.	-	-	-	1
Soturis, S. A.	-	-	(30)	-
Spower, S. A.	-	-	(5)	-
Petrogal, Sucursal España	-	(500)	-	-
Tagus Re, S. A.	-	(30)	-	-
Tanquisado S. A.	-	-	-	15
Transgás Armazenagem, S. A.	-	-	(38)	-
Transgás, S. A.	-	-	(2,195)	-
	6,279	(9,820)	(88,139)	749

The amount of 6,279 thousand Euros booked as operational costs, includes 3,269 thousand Euros related with Board costs charged by the shareholders Eni, S. p. A. and Amorim B. V., the amount of 2,272 thousand Euros from services rendered by the subsidiary Galp Energia, S. A., namely consulting services and management support for accounting, treasury, fi nancial management, administrative and logistics, purchasing and procurement, auditing, information syste Tms, human resources and training.

The amount of 9,820 thousand Euros booked as other operating income in 2010, includes the amount of 7,381 thousand Euros regarding management services and 2,438 thousand Euros of charged expenses to other group companies.

The amount of 88,140 thousand Euros refers to accrued interest on loans granted to related parties during 2010.

29 • REMUNERATION OF THE BOARD AND OTHER KEY MANAGEMENT PERSONNEL

The remuneration of Galp Energia corporate board's members for the years 2011 and 2010 were as follows:

		December 2011				December 2010
	Salary	Bonuses	Pension plans	Allowances for rent and travels	Other charges and adjustments	Total	Salary	Bonuses	Pension plans	Allowances for rent and travels	Other charges and adjustments	Total
Corporate boards of Galp Energia SGPS
Executive management	3,162	-	792	216	409	4,579	3,171	355	917	156	58	4,657
Non-executive management	1,226	-	194	46	98	1,564	1,284	68	69	45	-	1,466
Supervisory board	97	-	-	-	-	97	93	-	-	-	-	93
Shareholder's Assembly	7	-	-	-	-	7	4	-	-	-	-	4
	4,492	-	986	262	507	6,247	4,552	423	986	201	58	6,220

	INDIVIDUAL ACCOUNTS

The amounts of 6,247 thousand Euros and 6,220 thousand Euros, booked on 2011 and 2010, respectively, include 4,188 thousand Euros and 4,018 thousand Euros Employee costs (Note 6) and 2,060 thousand Euros and 2,202 thousand Euros of external supplies and services.

Other charges and adjustments for 2011 include 449 thousand Euros of bonuses received by the directors in respect of 2010.

In accordance with the current policy, remuneration of Galp Energia corporate board members includes all the remuneration due for the positions exercised in Galp Energia group and the accrued amounts.

The information concerning fees charged by the statutory and external auditor is disclosed in the Group governance report.

30 • DIVIDENDS

Dividends in respect of the net profi t for 2010 attributed to the Group's shareholders amounted to 165,850 thousand Euros in accordance with the shareholders meeting of 30 May 2011. Interim dividends of 49,755 thousand Euros were paid during the year ended 31 December 2010 and the remaining amount of 116,095 thousand Euros was paid during the current period.

31 • PETROLEUM RESERVES

Not applicable.

32 • FINANCIAL RISK MANAGEMENT

Risk management

Galp Energia is exposed to several types of risks, market risk (interest rate), liquidity risk and credit risk, inherent to its activity, which affect its fi nancial results.

Market risk

Interest rate risk

The total interest rate position is managed centrally. Interest rate exposure relates mainly to bank loans. The objective of managing interest rate risk is to reduce the volatility of fi nancial costs in the income statement. The interest rate risk management policy is aimed at reducing exposure to variable rates through fi xing interest rate risk on loans, using simple derivatives such as swaps.

Liquidity risk

Liquidity risk is defi ned as the amount by which profi t and/or cash fl ow of the business are affected as a result of the Group's diffi culty in obtaining the fi nancial resources necessary to meet its operating and investment commitments.

The Galp Energia group fi nances itself through cash fl ows generated by its operations and maintains a diversifi ed portfolio of loans. The Group has access to credit amounts that are not fully used but that are at its disposal. These credits can cover all loans that are repayable in 12 months. The available short and medium and long term lines of credit that are not being used are suffi cient to meet any immediate demand.

Credit risk

Credit risk results from potential non-compliance by third parties of contractual obligations to pay and so the risk level depends on the fi nancial credibility of the counterparty.

In addition, counterparty credit risk exists on monetary investments and hedging instruments. Credit risk limits are established by Galp Energia and are implemented in the various business segments. The credit risk limits are defi ned and documented and credit limits for certain counterparties are based on their credit ratings, period of exposure and monetary amount of the exposure to credit risk.

Impairment of accounts receivable is explained in Notes 14 and 15.

33 • CONTINGENT ASSETS AND CONTINGENT LIABILITIES

Contingent assets

(i) Following the sale in 1999 of 40% of OPTEP SGPS, S. A.'s share capital, corresponding to 440,000 shares with a nominal value of Euros 5 per share, the base selling price of 189,544 thousand Euros was contractually established, of which 74,818 thousand Euros was attributed to the 093X segment and 114,726 thousand Euros to the E3G/Edinet segment.

The sale by GDP, SGPS, S. A. (currently designated Galp Energia, SGPS, S. A. for purposes of the merger carried out in 2008) and Transgás, S. A. (currently designated Galp Gás Natural, S. A.) to EDP, S. A. was established with the condition that if OPTEP SGPS, S. A., 093X or any other entity directly or indirectly controlled or participated in by EDP sells or in any other way disposes of, to a third party, a participation equivalent to 5% of Optimus, that is 450,000 shares with a nominal value of Euros 5 per share, during a period of 3 years as from the date of signature of the agreement (24 June 1999), the difference between the amount of tEuros 74,818 and the sale price would be divided between the parties, as follows:

		tEuros for each 220.000 shares
--	--	--------------------------------	--

tEuros for each 220,000 shares	EDP	GDP group
Between 37,409 and 42,397	0%	100%
Between 42,397 and 52,373	25%	75%
More than 52,373	75%	25%

On 28 September 2000 GDP SGPS, S. A., Transgás SGPS, S. A. (currently designated GDP Distribuição, SGPS, S. A. for purposes of the merger carried out in 2006), Transgás, S. A. and EDP, S. A. made an amendment to the agreement, under which the deadline for dividing any potential gain on the future sale of Optimus shares was extended to 31 December 2003.

On 22 March 2002 EDP announced the sale of the participation in OPTEP SGPS, S. A., the company that holds a 25.49% participation in Optimus, to Thorn Finance, S. A.. The sales price was fi xed at 315,000 thousand Euros, which means that Thorn Finance valued Optimus at 1,235,779 thousand Euros, which is higher than the value established between the parties, which was 748,197 thousand Euros. Therefore, an upside of 30,253 thousand Euros arose, payable by EDP, S. A., to be divided equally between GDP SGPS, S. A. (merged into Galp Energia SGPS, S. A. effective as of 1 January 2008) and Transgás SGPS, S. A. (currently called GDP Distribuição SGPS, S. A. as a result of the merger in 2006).

As EDP has not agreed to the GDP group's expectations, this account receivable has not been booked.

Pledged guarantees

At 31 December 2011 the pledged guarantees amounted to 51,460 thousand Euros, made up essentially of the following:

• Guarantees of 50,397 thousand Euros in benefi t of the Tax Administration;
• Guarantee in the amount of 520 thousand Euros in benefi t of EDP Distribuição de Energia, S. A., to ensure that the company can provide electricity in the Portuguese electricity market;
• As at 31 December 2011 the Company had Standby letter import credits amounting to USD 12,900 thousand relating to insurance premiums.

The Company has some bank loans contracted with "covenants" that can, if they are called in by the banks, lead to early repayment of the amounts taken. As at 31 December 2011, the medium and long term debt of the Company amounts to € 1.5 billion. Of the total of that debt contracts that contain "covenants" amount to € 1.3 billion. The existing "covenants" embody essentially the ratio covenants in order to monitor the fi nancial situation, including the Company's ability to service its debt. The ratio of Total Net Debt to Consolidated EBITDA is the most used and its value in terms of the Galp Energia group was below the value set in all contracts, except for an EIB loan amounting to € 296 million in which the value set is lower. As such, EIB may demand additional guarantees.

34 • INFORMATION REGARDING ENVIRONMENTAL MATTERS

Not applicable.

35 • SUBSEQUENT EVENTS

No subsequent events occurred after 31 December 2011, wich have a material impact on the fi nancial statements.

36 • APPROVAL OF THE FINANCIAL STATEMENTS

The fi nancial statements were approved by the Board of Directors on March 29, 2012.

37 • EXPLANATION ADDED FOR TRANSLATION

These fi nancial statements are a translation of fi nancial statements originally issued in Portuguese in accordance with International Financial Reporting Standards as adopted by the European Union (Note 2.1) some of which may not conform to generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.

THE ACCOUNTANT THE BOARD OF DIRECTORS

REPORTS AND OPINIONS

AUDIT REPORT FOR STOCK EXCHANGE REGULATORY PURPOSES ON THE INDIVIDUAL FINANCIAL INFORMATION

(Free translation from the original in Portuguese)

Introduction

1. As required by law, we present the Audit Report for Stock Exchange Regulatory Purposes on the fi nancial information included in the Directors' Report and in the attached fi nancial statements of Galp Energia, SGPS, S. A., comprising the statement of fi nancial position as at December, 31, 2011 (which shows total assets of thousand Euro 4.805.718 and total shareholder's equity of thousand Euro 1.773.145 including a net profi t of thousand Euro 77.152), the income statement, the statement of comprehensive income, the statement of changes in equity and the cash fl ow statement for the year then ended, and the corresponding notes to the accounts.

Responsibilities

• 1. It is the responsibility of the Company's Board of Directors (i) to prepare the Directors' Report and the fi nancial statements which present fairly, in all material respects, the fi nancial position of the Company, the results and the comprehensive income of its operations, the changes in equity and the cash fl ows; (ii) to prepare historic fi nancial information in accordance with International Financial Reporting Standards as adopted by the European Union and which is complete, true, up-to-date, clear, objective and lawful, as required by the Portuguese Securities Market Code; (iii) to adopt appropriate accounting policies and criteria; (iv) to maintain an appropriate system of internal control; and (v) to disclose any signifi cant matters which have infl uenced the activity, fi nancial position or results of the Company.
• 1. Our responsibility is to verify the fi nancial information included in the fi nancial statements referred to above, namely as to whether it is complete, true, up-to-date, clear, objective and lawful, as required by the Portuguese Securities Market Code, for the purpose of issuing an independent and professional report based on our audit.

Scope

• 1. We conducted our audit in accordance with the Standards and Technical Recommendations issued by the Institute of Statutory Auditors which require that we plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement. Accordingly, our audit included: (i) verifi cation, on a sample basis, of the evidence supporting the amounts and disclosures in the fi nancial statements, and assessing the reasonableness of the estimates, based on the judgements and criteria of the Board of Directors used in the preparation of the fi nancial statements; (ii) assessing the appropriateness of the accounting principles used and their disclosure, as applicable; (iii) assessing the applicability of the going concern basis of accounting; (iv) assessing the overall presentation of the fi nancial statements; and (v) assessing the completeness, truthfulness, accuracy, clarity, objectivity and lawfulness of the fi nancial information.
• 1. Our audit also covered the verifi cation that the information included in the Directors' Report is consistent with the fi nancial statements as well as the verifi cation set forth in paragraphs 4 and 5 of Article 451º of the Companies Code.
• 1. We believe that our audit provides a reasonable basis for our opinion.

Opinion

1. In our opinion, the fi nancial statements referred to above, present fairly in all material respects, the fi nancial position of Galp Energia, SGPS, S. A. as at December, 31, 2011, the results and the comprehensive income of its operations, the changes in equity and the cash fl ows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union and the information included is complete, true, up-to-date, clear, objective and lawful.

Report on other legal requirements

1. It is also our opinion that the information included in the Directors' Report is consistent with the fi nancial statements for the year and that the Corporate Governance Report includes the information required under Article 245º-A of the Portuguese Securities Market Code.

Lisbon, March 30, 2012

PricewaterhouseCoopers & Associados

• Sociedade de Revisores Ofi ciais de Contas, Lda.
• Registered in the Comissão do Mercado de Valores Mobiliários with no. 9077 Represented by António Joaquim Brochado Correia, R.O.C.

STATUTORY AUDITORS' OPINION ON THE STAND ALONE FINANCIAL STATEMENTS

Introduction

1. We have examined the stand alone fi nancial statements of Galp Energia, SGPS, S. A. (the "Company") for the fi scal year 2011, comprising the balance sheet as of December 31, 2011 (which refl ect total assets of 4.805.718 thousand Euros and a total equity of 1.773.145 thousand Euros, including a net income for the year of 77.152 thousand Euros), the income statement, the statement of comprehensive income, the statement of changes in shareholders' equity, the statement of cash fl ows for the year then ended, and the related notes to the stand alone fi nancial statements. These fi nancial statements relate to the standing alone activity of the Company and have been prepared in accordance with the International Financial Reporting Standards (International Financial Reporting Standards) as adopted by the European Union.

Responsibilities

• 1. The Board of Directors is responsible for: (i) the preparation of stand alone fi nancial statements that present a true and fair view of the fi nancial position of the Company, the results of its operations, the changes in shareholders' equity and its cash fl ows; (ii) the adoption of adequate accounting policies and criteria and for the maintenance of an appropriate system of internal control and (iii) the disclosure of any signifi cant facts that have infl uenced its operations, fi nancial position or results of operations.
• 1. It is our responsibility to report our independent professional opinion, based on our audit of such fi nancial statements.

Scope

• 1. Our examination was made in accordance with generally accepted Portuguese Statutory Auditing Standards, which require our audit to be planned and performed in order to provide reasonable assurance that the stand alone fi nancial statements are free from material misstatements. Therefore, our audit included examination, on a test basis, of evidence relevant to the amounts and disclosures in the fi nancial statements, and assessment of the signifi cant estimates, which were based on judgements and criteria defi ned by the Board of Directors, used in the preparation of the fi nancial statements, assessment of the adequacy of the accounting policies adopted and related disclosures, in the circumstances, examination of the adequacy of the going concern basis of preparation of the fi nancial statements, and evaluation of the overall adequacy of the presentation of the fi nancial statements.
• 1. Our examination also included verifying that the fi nancial information included in the Board of Directors' Report is consistent with the stand alone fi nancial statements, as well as the verifi cation of the matters mentioned in paragraphs 4. and 5. of article 451º of the Portuguese Commercial Companies Code.
• 1. We consider that the audit that we performed provides a reasonable basis for the expression of our opinion.

Opinion

1. In our opinion, the stand alone fi nancial statements mentioned above, present fairly, in all material respects, the stand alone fi nancial position of Galp Energia, SGPS, S. A. as of December 31, 2011, its stand alone results of operations, changes in shareholders' equity and cash fl ows for the year then ended, in accordance with International Financial Reporting Standards, as adopted by the European Union.

Reporting on other legal requirements

1. It is also our opinion that the information included in the Board of Directors' Report is consistent with the stand alone fi nancial statements and that the Company´s Corporate Governance Report includes the disclosures required by article 245º-A of the Portuguese Securities Code.

Lisbon, March 30, 2012

P. Matos Silva, Garcia Jr., P. Caiado & Associados, Sociedade de Revisores Ofi ciais de Contas, Lda. Represented by Pedro Matos Silva

SUPERVISORY BOARD'S REPORT AND OPINION

(Translation of a report originally issued in Portuguese)

Dear shareholders,

According with the current legislation and the Company's articles of association, and under our mandate, we hereby present our report about the supervisory activities we have performed during 2011 and express our opinion about the management report, the consolidated and separate fi nancial statements and the proposal for the appropriation of net profi t that the board of directors of Galp Energia SGPS, S.A., has presented with regards to the 2011 fi nancial year.

During the year, we followed on a regular basis the management and evolution of the Company's businesses and of its more relevant subsidiaries, with the timing and extension we considered appropriate, namely through regular meetings with the board of directors. We followed the examination of the accounting records, as well as the effectiveness of the risk management, internal control and internal audit systems. We monitored the fulfi llment of the law and of the articles of association. While carrying out our duties, we have never faced any constraints.

We have met several times with the statutory auditor and with the external auditor, monitoring the audit works and the legal certifi cation of the accounts, and supervising these entities' independence and qualifi cation. We have reviewed the legal certifi cation of the accounts and the audit report of the consolidated and separate accounts, with which we agree.

Under the scope of our mandate, we examine and we declare to the best of our knowledge that:

• a) the consolidated and separate fi nancial statements and corresponding attachments, allow for an adequate understanding the fi nancial position and results of the Company and of the subsidiaries included in the consolidation perimeter;
• b) the accounting principles and criteria used are in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union, and are adequate to guarantee a properly representation of the assets and results of the Company and of the Group;
• c) the management report includes a fair review of the development of the business and the performance and position of Galp Energia and the companies included in the consolidation as a whole, clearly highlighting the most relevant aspects of the business, as well as a description of the main risks that Galp Energia is exposed to in its operations;

d) the corporate governance report includes all the information required by the article 245-A of the Securities Code.

Taking in consideration the information received by the board of directors and other departments of the Company, as well as the conclusions lay down on the legal certifi cation of the accounts and audit report about the consolidated and separate fi nancial statements, our opinion is that:

• a) the management report should be approved;
• b) the consolidated and separate fi nancial statements should be approved;
• c) the proposal for the appropriation of net profi t should be approved.

Lastly, the supervisory board wishes to express its gratitude to the board of directors and to the executive committee of Galp Energia, SGPS, S.A., whose cooperation materially simplifi ed, at all times, the activities related to the supervisory board's duties.

Lisbon, March 30, 2012

• Chairman Daniel Bessa Fernandes Coelho
• Member Gracinda Augusta Figueiras Raposo

Member - Manuel Nunes Agria

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